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For a variety of reasons – namely Elon Musk’s attempted acquisition of Twitter (NYSE:TWTR) – Tesla (NASDAQ:TSLA) remains in the spotlight.
Before getting into the good stuff, a couple of housekeeping items. First, I do NOT directly own shares of Tesla. Second, Musk’s efforts to acquire Twitter – controversial as it is in some circles – should not be part of the Tesla stock evaluation process. Over the near-term, arguably the biggest problem facing the electric vehicle maker is an ongoing shutdown of its Shanghai factory due to China’s harsh COVID-19 restrictions.
Those are the breaks when investing in companies with China exposure. Likewise, Musk’s ability to roil some folks and his devil-may-care attitude are some of the breaks that come along with investing in Tesla, exaggerated as they may be.
Chances are some clients that regularly follow markets in their own time know this already and with Musk wanting to again split Tesla stock, it’s not a stretch to say more clients will be interested in the shares.
Here’s What ARK Says
As is widely known, Cathie Wood’s ARK Investment Management is a long-time Tesla bull and is one of the largest institutional investors in the stock. Tesla is a top holding in three of ARK’s six actively managed funds.
Tesla critics, of which there are plenty and they, interestingly, frequently make their voices heard on Twitter, aren’t shy about extending their criticism to ARK. Nor is ARK shy about unveiling ambitious price targets on Tesla. Of course, advisors are right to take those calls with a grain of salt, but it’s also worth noting the fund issuer has a history of accuracy with its Tesla calls.
Related, its latest Tesla forecast is $4,600 in 2026, or more than quadruple where the stock closed on April 14. Should that call prove accurate, it means the electric vehicle giant will eventually be worth more than $4 trillion. Even ARK’s bear case -- $2,900 – is noteworthy.
The issuer’s latest Tesla view “is based on ARK’s new open-source Tesla model, which incorporates distributions for 38 independent inputs to simulate a range of potential outcomes for the company.”
Indeed, the fund issuer’s Tesla outlook involves some far-flung concepts, such as robotaxis, indicating a bet on Tesla remains something of a wager on Musk’s genius.
“Tesla’s prospective robotaxi business line is a key driver, contributing 60% of expected value and more than half of expected EBITDA in 2026,” says ARK analyst Tasha Keeney. “Across our simulation set, we expect electric vehicles to constitute 57% of the company’s revenue in 2026, albeit at substantially lower margins than robotaxi revenue.”
What’s important to note about ARK’s Tesla estimate is that it assumes the company will sell more electric vehicles but at a lower average selling price while generating more free cash flow.
More Assumptions
Robotaxis aren’t the only futuristic concept built into ARK’s Tesla price forecast. The ETF issuer also believes Musk’s company will be able to disrupt the ride-hailing business model as well as fully solve autonomous driving.
“Based on our analysis of consumers’ perceived value of time, we now expect more demand for autonomous ride-hail at higher price points than we had modeled originally,” adds Keeney. “Our research suggests that travelers in western markets place a value on their work-related travel miles close to their hourly wage, and value their non-work-related travel miles at close to half their hourly wage.”
Additionally, the fund sponsor projects Tesla will become more capital efficient over the next several years, confirming access to and cost of capital are no longer headwinds to the company’s growth plans.
Perhaps surprisingly, a case can be made that ARK’s projection could ultimately prove accurate or even conservative on the basis that it does NOT account for Tesla’s energy storage business or the company’s work on artificial intelligence and robotics. For advisors, the prudent path is to discuss with clients the likelihood Tesla stock isn’t going to quadruple in four years, but that there remain significant growth opportunities here for risk-tolerant investors.
Related: All You Need to Know About the Stock Split of Amazon, Tesla, and Alphabet